1 Dec: End of month profit talking sends stocks down. US$ unchanged. RBA Meeting, global Mfg PMIs ahead today. Fed’s Powell speaking later.

1 Dec: End of month profit talking sends stocks down. US$ unchanged. RBA Meeting, global Mfg PMIs ahead today. Fed’s Powell speaking later.

The US$ is marginally firmer on Tuesday, while stocks have given back 0.5%/1.5% on the last day of November, ending a month in which the major global indices have gained anywhere between 10%-17%. Month-end profit-taking and rebalancing of portfolios drove Monday’s weakness, although there is little change in the longer term outlook for 2021, as traders remain optimistic for further positive news on Covid-vaccines and on hopes of a swift economic rebound next year.

In the FX markets, the Euro did briefly crack 1.2000 for the first time since early September but quickly reversed back to 1.1950 after weaker than expected German inflation data (HICP @ -0.7%mm, vs expectations of -0.5%mm), leaving EurUsd pretty much unchanged on the day. Likewise, the Aud$ breached 0.7400 for the first time since August, but that too was a fleeting move and we are now back at 0.7350, with both the currency and the ASX not helped by Australia’s latest spat with China. Elsewhere, the FX markets were relatively steady, although Sterling held its ground on hopes of a breakthrough in the ongoing Brexit talks.

In the commodities markets, Oil fell about 1.5% on Monday, as OPEC+ members met to discuss the possibility of extending output cuts, but WTI will end the month with a strong rally (+26.7%mm), built on hopes that COVID-19 vaccines will soon be available. The OPEC members reached the broad consensus on the need to extend existing oil production cuts, for three months from January, if their allies in the wider OPEC+ group also support such a move.

Gold had a rough month and ended November down almost 6%, its worst month in four years as positive vaccine headlines and diminishing need for a safe haven demand saw investment funds cycle back into risk markets and crypto currencies.

In terms of data, aside for the soft German inflation figures, the US Pending Home Sales fell by 1.1% – against expectations of a bounce of 1.1%. The Fed data was mixed, with the Chicago Purchasing Managers Index just missing expectations of a reading of 59, coming in at 58.2, while the Dallas Fed Mfg Business Climate Index came in at 12, well above expectations of 7.4.

Tuesday will be busy, with the main focus being on the global manufacturing PMIs (Australia, China, Japan, EU, UK, US)   but also including the last RBA Meeting until February. There is no change in policy expected, after the moves that occurred in November, and the focus is going to be on the statement. Ahead of the RBA, we get the Australian October Building Permits (exp -3.0%mm) and the Q3 Current Account (exp +7.1bio) along with the CBA Australian and the Caixin China Mfg MPIs.  Later on, alongside the PMIs the German November Unemployment rate (exp 6.2% – unchanged) and the ECB Preliminary November CPI will be released (exp -0.2%mm, Core; +0.2%mm) ahead of a big US session that will include the ISM Mfg PMI/Prices Paid figures and Fed Chair Powell testifying to Congress. Also due, will be the Global Dairy Trade Index and the API Weekly Crude Oil Stock Inventory.

Economic data highlights will include:

Tue: Global Mfg/Services/Composite PMIs (Australia, China, Japan, EU, UK, US), Australian Building Permits, RBA Interest Rate Decision/Statement, RBA Commodity Index, EU EcoFin Meeting, German Unemployment, EU CPI, US ISM Mfg PMI/Prices Paid, Fed Chair Powell Testifies to Congress, Global Dairy Trade Index, API Weekly Crude Oil Stock Inventory

Market moves, in brief:

FX: DXY 91.97 (+0.19%)

Bonds: US10Y; 0.842% (+0.19%), German 10Y; -0.569% (+3.17%), UK 10Y; 0.306% (-2.24%), Australian 10Y; 0.909% (-0.12%), NZ 10Y; 0.861% (-4.10 %), China 10Y; 3.285% (-0.78%)

Stock Indices: DJI; -0.9%, S+P; –1.60%, NASDAQ; -0.06%, EUStoxx50; -1.0%, FTSE100; -1.59%, Shanghai Composite; -0.49%, ASX200SPI: -1.78%

Metals: Gold $1777 oz (-0.53%), Silver $22.62 oz (-0.35%), Copper $3.42 lb (+0.87%), Iron Ore $127.95 per tonne (NYMEX) (-1.04%)

Oil: WTI $xxx pb (xxx%)

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Trend Table: December 1, 2020                                                    

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In the trend table below, when looking at the charts for a particular FX pair, index or commodity, we are we searching for 2 or 3 consecutive boxes of the same colour which might indicate a trend – and a possible trading opportunity. Consecutive (1 & 4 hour, 4 hour/daily, daily/weekly) green boxes indicate a possible short/medium/long term uptrend; red, a possible downtrend, while blue signifies a neutral bias (range trade possibility).  The boxes on the trend table merely replicate the look of the charts for the specific time-frame in MT4/5. Assets with a mixture of colours are pretty much ignored as choppy conditions seem likely to prevail.

For instance, if we see consecutive green boxes in the  1 hour and 4 hour time-frames for the FX pair “EURUSD”, that would signify the chance of a move higher in that pair over the next 24 hours. If the dailies were also green that would add to the bullish conviction from a slightly longer term perspective, and if the weeklies are also green then it would give added credence to the longer term bullish view, albeit that it might take longer for the trend to play out, so patience will almost certainly be required.   The opposite would be true of red boxes, which could signify downward momentum. The strength of any possible trend depends on the time-frame, with the longer term (daily, weekly charts) obviously having a greater overall weighting than the short-term charts.

In the near term though, the 1 and 4 hour charts are what are likely to combine to indicate the possibility of a trading idea for the next few, possibly up to 24, hours.

Note that a longer term bullish view (green daily/weekly boxes) does not discount the possibility of near term dips (i.e. Red 1 & 4 hour boxes), which may indicate near term weakness and suggesting that we should be looking to buy dips for a longer term rally – and vice versa if the near term boxes are green and the longer term; red.

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Outlook:

It was a mildly risk averse ­session to start the week as traders locked in profits after the strong gains seen in November. The short term picture in the FX markets seems to suggest that we could see further mild strength in the US$, with the Euro, Aud$ and Nzd$ all looking a little heavy although the longer term picture remains unchanged and I suspect near term dips in the currencies are a buy, as I think the US$ will remain under pressure into the year-end and on into 2021. I would avoid US$Jpy for now as it is choppy/neutral although the short term momentum indicators to suggest the chance of some mild gains for the dollar today.

On the crosses, AudNzd still looks very heavy and a test of 1.0400 looks possible. EurGbp looks a little heavy, but is totallly reliant on the next Brexit headline.

Stocks look as though they may endure further near-term weakness – particularly the ASX, although I still think that any dips are probably a buy. It may be that we now endure some wide consolidation though as we head into the holiday period, but for today, the ASX looks heavy. The S+P seems set for 3600/50 consolidation, with a view for a mild downside bias towards 3690, possibly 3550.

The metals look rather dire and, for Gold, a test of 1750 may be on the cards. A SL on shorts should be kept tight above 1800 (200DMA).

Oil is taking breath after a strong month of gains but I do suspect that we are heading for a test of 50, possibly 55 at some stage.

EURUSDUSDJPYGBPUSDUSDCHFAUDUSDNZDUSD
1 HourTurning LowerNeutral – Turning Higher?Turning NeutralNeutralDownNeutral – Turning Lower?
4 HourPossible Topping FormationNeutral – Turning Higher?Turning NeutralNeutral – Turning Higher?Neutral – Turning Lower?Possible Topping Formation
1 DayTurning Higher?Turning NeutralNeutral – Turning Higher?Neutral – Turning Lower?Neutral – Turning Higher?Turning Higher
1 WeekTurning NeutralTurning NeutralTurning Higher?Turning Higher?Neutral – Turning Higher?Turning Higher
DXYS+PASX200GOLDSILVEROIL_WTI
1 HourTurning HigherTurning NeutralTurning Lower?Turning HigherTurning HigherTurning Neutral
4 HourNeutral – Turning Higher?Neutral – Turning Lower?Turning LowerPossible Basing FormationPossible Basing FormationTurning Lower
1 DayNeutral – Turning Lower?Neutral – Turning Higher?Possible Topping FormationDownNeutral – Turning Lower?Turning Higher
1 WeekPossible Basing FormationUp – OverboughtUpDownDownNeutral
EURJPYEURGBPGBPAUDAUDJPYEURAUDAUDNZD
1 HourTurning Lower?Neutral – Turning Lower?UpTurning NeutralTurning Higher?Down
4 HourNeutral – Turning Higher?Neutral – Turning Lower?Turning NeutralTurning NeutralTurning NeutralNeutral – Turning Lower?
1 DayTurning NeutralTurning NeutralTurning NeutralTurning NeutralTurning NeutralTurning Lower
1 WeekNeutral – Turning Lower?Neutral – Turning Lower?Turning NeutralTurning NeutralTurning NeutralTurning Lower

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